Court ruling affects Kia car project

Court ruling affects Kia car project

JAKARTA (JP): The recent ruling by the Supreme Court that
ordered PT Timor Putra Nasional car company to pay the tax
directorate general Rp 3.2 trillion (US$326 million) in back
taxes and duties has further put the fate of the Kia car project
in limbo, Trade and Industry Minister Luhut Panjaitan said here
on Wednesday.

The ruling automatically put the tax directorate general in
seniority over the Indonesian Bank Restructuring Agency as
regards to the claims on TPN assets, Luhut told a hearing with
the House of Representatives.

"This development consequently forced the Indonesia-South
Korean taskforce to discontinue its efforts to revive the TPN car
project under a new joint venture company called PT Kia Timor
Motors (KTM)," he added.

Before the Supreme Court ruling, the government had agreed on
restructuring TPN's $521.5 million debts, resulting in IBRA
owning 69 percent of KTM and the remaining stake held by Kia
Motor of South Korea and TPN.

Nonetheless, the ruling overthrew the agreed ownership
composition and forced the joint taskforce to postpone its work
on the car project, he said.

The national car project was initiated in the mid-1990s by TPN
which was then owned by former president Soeharto's youngest son
Hutomo Mandala Putra or Tommy, in cooperation with South Korean
automotive company Kia.

The national car project was exempted from import duties and
luxury tax for three years, on condition that the cars' local
content reached at least 20 percent in the first year of the
program, 40 percent by the end of the second year and 60 percent
by the end of the third year.

But TPN failed to fulfill the requirement and lost its
powerful government support after the ousting of Soeharto in May,
1998. It was later ordered to pay Rp 3.2 trillion in back taxes
and duties.

The economic crisis and the condition imposed by the
International Monetary Fund on its bailout program for Indonesia
later forced the government to suspend the project.

The government (IBRA) then took over TPN and its debts to
private and state banks.

Kia withdrew from the joint venture in 1999, only to re-enter
it last year as part of the government's bid to revive the car
project.

Referring to negotiations with Kia company for reviving the
car project, Luhut said that the Korean car company asked for tax
facilities as one of the preconditions to its additional
investments to complete the project.

He added that Kia had asked the government to exempt the
national car project from import duties, luxury taxes, as well as
offer it lower bank interest rates on new loans.

"We're still evaluating their (Kia's) demands, I can't tell
whether we can accept them," Luhut told reporters following the
hearing with the House Commission V for trade and industrial
affairs.

He said the government was still assessing as to whether Kia's
demands complied with the rulings of the World Trade Organization
(WTO).

Indonesia came under fire from the WTO when the government
first introduced tax facilities for Kia at the project's launch
in 1996.

Luhut considered reviving the Timor car project quite an
uphill task as the project's cost had grossly been marked up by
TPN.

An audit by Ernst & Young accountancy firm disclosed that TPN
had inflated the amount of investments it claimed to have put in
the project, according to Luhut.

TPN claimed to have invested $112 million in its assembly
plant in West Java but Ernst & Young due diligence estimated the
investment at only $31 million.

"But the government would still try its best to revive the
project in a bid to prevent total losses," Luhut added. (bkm)